Could You Hold Please?

Statewide, more than $60 million in construction projects have been held up because of a recent ruling by the Hawaii state Supreme Court

June, 2003

In November 2002, construction company James A. Glover won a contract for a project to remove nitrate from Honolulu Board of Water Supply wells in Kunia. Glover had put in the low bid of $5.2 million. Maile Romanowski, chief executive officer for the company, had hoped to start work within a couple of months, if not weeks.

As of late March 2003, Romanowski was still waiting for the go-ahead from the board. The reason for the long wait: a recent Hawaii state Supreme Court ruling in the case of Okada Trucking vs. the Board of Water Supply. The complex ruling came into force Jan. 29, 2003. Already it has ensnared millions of dollars worth of state and county projects in red tape web-worthy of Spiderman.

The particulars of Okada Trucking are somewhat arcane, but hugely relevant to the state’s construction industry. In 1999, Okada Trucking Co. Ltd. contested a Honolulu Board of Water Supply contract to Inter Island Environmental Services Inc. Okada claimed Inter Island had not listed all subcontractors on the bid. The case ended up in the Hawaii state Supreme Court in November 2001 and the court ruled in favor of Okada. The ruling offered a new interpretation of an old administrative law. General contracts now must use specialty subcontractors for any part of a project that requires their specific specialty. Traditionally, general contractors could perform limited amounts of specialty work, such as painting or roofing. Under the new rule, a general contracting company doing a water pipeline project would be barred from painting three fire hydrants on the section of the street ripped up for the project unless it listed those hydrants on its bid as well as the subcontractor who would paint them. Alternatively, the general contractor could obtain a painting license.

The upshot? Now contractors have no wiggle room and must plan for every single event in which a subcontractor might be needed for a job, or face legal protests from other bidders that could freeze a project. This is particularly difficult in the construction bidding process, when bids often do not come together until the very last minute, or sub-contractors submit their bids literally minutes before deadline so as not to tip their hand to competitors.

Holding resources, while a project remains in limbo, costs construction firms money. So do the work orders for minor jobs, as required by the Okada decision. “You have the extra mobilization cost of bringing in the subcontractor,” says Karin Holma, a construction attorney and partner in the Honolulu law firm Bays Deaver Rose. Holma has tallied $60 million in projects that have been put on hold, due to the Okada Trucking decision. “That’s $60 million worth of work not going out to companies to pay employees,” she says.

The state and counties – and ultimately taxpayers – will probably suffer the most from the Okada decision. Officials at the Hawaii Department of Accounting and General Services (DAGS) say they are spending an increasing amount of time dealing with paperwork and negotiations on projects held up by Okada protests. “It’s taking more than 60 days to resolve many of these protests,” says Howard Tanaka, head of maintenance and engineering at the water supply board. Worse, government officials fear projects that are delayed will be removed from state and county budgets or lose matching federal funds.

At the time of this writing, the Hawaii state Legislature was examining bills that could alleviate the logjam. The bills gave a clearer definition of what can and cannot be protested. Okada Trucking executives did not return phone calls requesting comment. As it came from the state Supreme Court, the ruling cannot be appealed. For now, the sign “Men at Work” could be replaced with the sign “Men in Court” for an increasing number of crucial public projects held hostage to the Okada decision.